It is no surprise that equity markets have continued to grind upwards, as the distorting impact of QE has kept rates low and liquidity high, said Colin McQueen, Sanlam Four Stable Global Equity manager.
But with bubbles inflating in many US sectors and valuations outside of the tech sector reaching their highest points, investors should be prepared for a pullback.
“One surprise of the US bull market is that it so narrow in nature. Maybe this is the nature of late-stage bull markets, as we saw with the nifty fifty or dotcom frenzies.
“The ever-increasing multiples for a number of high-growth tech names also threatens the status quo. The variation in valuations is widening, as high growth companies attract investor and index buyer flows, while significant parts of the market seem becalmed and out of favour.
However, McQueen noted that “momentum can last an unpredictably long time, but it will end and usually when we are least expecting it”.